What Are The Main Ethical Investment Strategies?

Essentially, fund managers use one of four main ethical investment
strategies to help them select stocks (or equities) for their
portfolio's. These are:

- Preference. Companies within an industry or sector are
rated for their policies and performance against environmental or social
criteria. Fund managers often look for a 'best in class'.

- Thematic. Themes are used to try and identify industries
or stock market sectors which have the potential to influence the world
in a positive way.

- Ethical screening. Companies are either included or
excluded on investment grounds for their ethical policies and behaviour
before a fund manager even looks at them! The fund manager is then
choosing investments from a selection of companies which already meet
high social or environmental standards.

- Positive engagement. There are many companies who 'could
do better' and fund managers may purchase blocks of shares in this type
of stock. Once bought, the manager uses his influence at boardroom
level to try and pressure the company to change policies and behave in a
more responsible manner.

As you might imagine, it is important for each fund to announce their
policies so that investors can clearly see which types of business are
included and excluded.

With the expansion of environmental and ethical funds since
around 2000, there is now a very wide range of funds for an investor to
choose from. It is now almost possible to invest for the long term with
almost every possible quirk of morality included!

Whilst we agree completely with the idea of a social or ethical
conscience in investment - and life - this is a very complex area. This
complexity has sprung a whole new area of research analysts and
consultants so that fund managers can outsource this task as required.

Your author knows a self-employed consultant that provides
ethical guidance (including religious) to hedge fund managers! He
charges by the hour, plus a retainer of course, for acting as a
consultant and talking through moral issues with fund managers as and
when they need guidance. What a specialised occupation!

There are companies which offer independent ethical research to
help fund managers. They act as an ethical policy monitor to keep watch
on an ongoing basis. As with so much in the world of investment, this
specialised research is outdsourced to small teams of analysts that
follow the main 'green' companies. It may also be that outsourcing this
task also helps to insulate the management team from any poor ethical
decisions - they are able to say that they "hired the best to help us".

Most investment banks now maintain a team of ethical fund
management analysts so that so that they can offer client reports,
'colour' and guidance to their best customers.

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